CHAPTER ONE
INTRODUCTION
1.1 Background to the Study
Money laundering poses a serious threat to individuals, businesses, financial systems, markets and governments as this financial crime affect and destruct the economy development of a country(both developed, developing and undeveloped), for example developing countries such as Nigeria loses billions every year to to Money launderers. Many international and regional government has begin to acknowledge that money laundering has become a continuous serious threat to the global economy development of the financial system as well as the global community. The term, “Money laundering” is the concealment of the source, nature, existence, location and disposition of money and/or property obtained illegally or from criminal activities such as embezzlement, drug trafficking, prostitution, 419, corruption and large scale crime. The origin of this money laundering could not be ascertained by anyone, but there are several opinions that it started several thousand years ago with Chinese merchants, and also from mafia ownership of laundmarts, in the United states where they needed to prove their genuine source for their monies as they earned their cash from extorting, gambling, and bottle liquor. Due to the growing of organized crimes such as financial terrorism, tax evasion and others, money laundering is believed to be the third serious crimes by some academic researchers, with an estimated 60% to 70% of it occurrences in the world. Most of our financial institutions today fail to recognize that the phenomenon “fraud” can appear to be more dangerous when compared to other forms of problem like armed robbery attack which can only affect the institution within a short period of time, such may have no long term effect on their operations.
However, any significant fraud committed in an institution, not only undermines or shakes up it’s financial stability but can severely affect the reputation of the institution thereby resulting to investor’s loss of confidence. According to the United State Treasury Department “money laundering “ is the process of making illegally gained proceeds (i.e. dirty money ) appears legal (clean) and this involves three steps: placement, layering and integration. This is the more reason why many regulatory and governmental authorities issues estimates each year for the amount of money laundered, either worldwide or within the national economy. In 1996 the international monetary fund estimated that two to five percent of the world wide global economy involved money laundered. Furthermore, Osisoma (2009) refers to money laundering as a second-order financial crime which derives from an underlying criminal activity often called predicate offences. It generates proceeds which when laundered results in the offences of money laundering. i.e. money laundering is a cross border crime. Summers (2000), states that the observable fact of money laundering is a characteristic of organized crime with researcher and academic estimating that the money laundering generate about US$100 billion; while the British Intelligence estimated that the total amount being laundered annually is about US$500 billion. While firms operating in the same country generally have to follow the same AML laws and regulations, accountancy firms in Nigeria all structure their AML efforts slightly different. That is why, most financial institutions globally, and many non-financial institutions, are required to identify and report transactions of a suspicious nature to the financial intelligence unit of the country.
Furthermore, the international monetary fund working paper concludes that money laundering impacts financial behavior and macro-economic performances in different forms such as policy mistakes due to measurement errors in nationals account statistics, volatility in exchange and interest rates due to unanticipated cross border transfer of funds, the threat of monetary instability due to unsound asset structures, effect of tax collection and public expenditure allocation due to misreporting of income, misallocation of resources and contamination effect on legal structures due to the perceived possibility of being associated with financial crime. John and Gary (2001) explains that the exploit of money laundering and currency maneuvering can harmfully undermine currencies and interest rates, more predominantly in a developing economy like Nigeria.e.g. a developing country such as Nigeria roles on the acquisition of other currencies in order to fulfill the international obligations in satisfying local needs, thus inversely uncurbed money laundering practice into the system. As profit making is not only the stimulating factor for investing the proceeds of economic crimes in any business, it is always convenient for money launderers to move funds around as the situations may demands.